JERUSALEM (CNN) -- Jerusalem can never be internationalized nor divided to give Palestinians sovereignty in part of the city, the Israeli Cabinet proclaimed Sunday, challenging a European Union assertion that East Jerusalem is separate from Israel's capital.

Jerusalem "will remain forever under the sole sovereignty of the state of Israel," the Cabinet said in a statement released after its weekly meeting. "The position that Jerusalem is a (separate entity) is ... totally unacceptable to Israel."

The Palestinians want East Jerusalem -- an area captured by Israel during the 1967 Middle East war -- to become the capital of a future Palestinian state.

Last month, Israeli Foreign Minister Ariel Sharon asked international diplomats to cancel a meeting with Palestinians at Orient House, the PLO's Jerusalem headquarters.

European ambassadors rejected the request to halt the meeting, saying Jerusalem and East Jerusalem were separate entities.

'Rallying around the flag'

Israeli Prime Minister Benjamin Netanyahu faces a tight race for re-election in May leading some to believe the Cabinet's action was as much electioneering as state business.

"When Israel is under attack, when it is criticized by Europe, the U.S., there's this general sentiment of rallying around the flag," said Israeli political analyst Chemi Shalev.

"Netanyahu is the man who emerges as the one who will tell everybody off, who will be a tough prime minister. And I think people don't reach the ... conclusion that perhaps some of these attacks are also a direct consequence of Netanyahu's policies," Shalev said.

Arafat lobbies for support

Palestinian leader Yasser Arafat, meanwhile, is on a different campaign trail.

He is seeking guarantees of support from world leaders in return for giving up his intention to declare a Palestinian state just two weeks before the Israeli election.

Europe and the United States have urged Arafat not to make such a declaration, fearing it would spark a crisis in the peace process.

But some Palestinians fear Netanyahu, to get re-elected, will claim a victory over Arafat if the Palestinian leader backs down.

"Giving up the Palestinian intention to declare a state on the 4th of May is going to be used to the advantage of Netanyahu," said Palestinian political analyst Ghassan Khattib, "because he can address his public by saying, 'It's because of me Arafat has retreated from declaring a state. I'm the only one who can really frighten Arafat.'"

The Palestinian Liberation Organization is expected make the final decision on the declaration next month.